Wednesday, February 16, 2011

How to save on menu costs and Michigan's sticker law

If prices change through inflation then businesses like gas stations and super markets have to change the signs or stickers where prices are shown. This cost of hiring someone to change the billboard or put stickers on peas is called menu costs. My friend Dan e-mailed me the above picture, which I love. The shell station saves the menu costs of having to change the sign regularly. A really complex game theory type game could be developed based on that sign.

In times of high inflation menu costs can really start to add up. A friend from Argentina told me a story of times of high inflation in the 1980s in Argentina where price stickers were changed three times a day based on the current prices. This would be even crazier in Michigan where apparently every item at a store must have a sticker. This Wall Street Journal article describes how difficult it is to keep stickers on things like frozen peas. The article also sites a study by a retailers lobby that says repealing the sticker law would save over 2 billion dollars. One retailer calls that "estimate" stupid, but does point out it takes 80 labor hours a week to put stickers on everything.

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1 comment:

Britt said...

There was an awesome story on Planet Money about how bad inflation was in Brazil, and how the improbable URV saved the day.